Why Economists Think We Should Get Rid of Patents

Gabrielle Karol
Posted
  • Studies show that patents don’t increase productivity. Levine and Boldrin show that while the number of patents has quadrupled over the last three decades, the Bureau of Labor Statistics finds that annual growth in productivity has actually decreased, from 1.2% in the 1970s to below 1% from 1990 to 2009. Regarding productivity, Levine says, “We usually refer to total factor productivity (TFP), meaning how much output we get for a given amount of input …. For example, how much value can be produced from a given amount of labor and capital? This has increased enormously over time due to innovation—but not, as far as anyone can tell, due to patents.” Levine and Boldrin suggest, from looking at studies nationally and globally, that because patents grant a monopoly—at least for a limited period of time—they hurt the type of competition that would lead to more innovation.
  • Patents favor larger companies. The United States’ patent laws have led to the development of the “patent trolls.” Take, for instance, Jobs’s drive to patent technologies Apple had thought up but not necessarily developed. Because of its huge size and profits, Apple can afford to prosecute smaller companies that it feels are infringing upon its patents—even if Apple doesn’t foresee using those inventions in the near future. By forbidding other companies to profit from similar technologies, Apple, and other big companies especially protective of patents, could thus be hampering job creation and economic growth.
  • Non-specific patents discourage competition. Unlike mechanical objects, which patents were initially developed to protect, the nature of software has led to broad patents that grant ownership of concepts rather than physical creations, enabling patent owners to argue that those building totally different products have violated their intellectual property. In a New York Times interview, federal appellate judge Richard A. Posner said that the standard for granting patents had become too loose, creating chaos. If inventors can be sued for violating patents they didn’t know existed—or ones that didn’t seem applicable to their work—then there’s no longer much of an incentive to invest in R&D.
  • Patents hurt consumers. By granting monopolies, patents hurt consumers by not allowing competition to bring down costs. Levine and Boldrin argue that this is especially prevalent in the pharmaceutical industry, where patents help raise the cost of prescription drugs and at the same time prevent innovative new treatments from coming to market.

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In the tech sector, stifling competition can also hurt the consumer: In the landmark patent case in which Apple went head to head with Samsung for two years, Samsung’s loss, in which it will have to pay Apple about $600 million, prompted the company to release this statement: “Today’s verdict should not be viewed as a win for Apple, but as a loss for the American consumer .… It will lead to fewer choices, less innovation and potentially higher prices.”

Could the U.S. Ever Do Away With Patents Altogether?

Given that Boldrin and Levine argue that patents substantially harm the economy, is it plausible that the United States would ever do away with patents entirely?

Levine, looking internationally for models, points to Holland and Switzerland, which he says didn’t have patents at all during “the most important stages of the Industrial Revolution” in those countries. While he believes it would be difficult to revoke patents altogether, Levine states, “Constant political pressure from the many people who are involved in innovation and who benefit from it, together with political reforms to make government more responsive to the common welfare and less responsive to special interests” would help to change the system.

Levine continues, saying, “Economists fought long and hard against both slavery and trade restrictions—systems that were as entrenched in their time as patents are today. It took a long time in both cases but ultimately we prevailed over the vested interests.”

In the meantime, however, he suggests slowly phasing out patents by giving increasingly brief patent durations. Additionally, Levine and Boldrin suggest examining the value of patents in different sectors, writing, “Because competition fosters productivity growth, antitrust and competition policies should seek to limit patents when they are hindering innovation. This policy may be of particular relevance for high-tech sectors, from software to bioengineering, to medical products and pharmaceuticals.”

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It may turn out that corporations—who are spending such enormous sums on patent litigation—may decide to change the tide when it comes to patents, as with Google’s new pledge. Whether or not other companies, however, decide to take up the cause as well remains to be seen.

What do you think: Should patents be protected for inventors … or done away with for the good of the economy?

  • Guest

    As international law currently stands, the US could not do away with patents because it has obligations under the
    Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) to maintain and enforce a patent system, with minimum standards of protection that TRIPS sets forth. TRIPS is a core WTO treaty onto which all member nations of the WTO must sign. That being said, there are a number of “flexibilities” or “policy levers” in TRIPS that allows a member nation to tailor, decrease, or increase the amount of protection its domestic patent law system provides (see what India’s government has done with patents in the pharmaceutical industry). So while the US could tweak its domestic patent law standards, it could never eliminate patents altogether and still comply with its international law obligations.

  • GuestII

    1. Patents help inventors profit.

    If one patent from one inventor prevents ten other inventors from making forward progress in a field like searching for a cure to cancer, then you would have ten inventors bankrupted, and one making a profit.

    2. Patents spur innovation.

    If one inventor makes money from an idea, then he can be funded to produce more ideas. Of course, if his idea is brilliant enough, then he can just take his money and spend all of his time racing lamborghinis. He’ll never need to invent again. And as long as he keeps renewing his patent, he can prevent anyone else from inventing again, as well.

    3. Patents create jobs.

    Sure, Edison vs Westinghouse. Edison could have won the courtroom battles necessary to put DC power ahead of AC, and not only would his temporary monopoly granted him billions; Westinghouse wouldn’t exist, and the only employer in electricity would be Edison. And DC power would make electricity 10 times more expensive than the AC power we live with today. That’s a healthy economy for job creation. Monopolies always make life interesting.

    4. Patents spread knowledge.

    More so than the ordinary academic pursuits? Good research cannot exist in a vacuum.

    5. Patents help companies get funding.

    True. They provide a defense from potential patent defense litigation, hence, improve a companies survival rating.

    Let’s imagine for a second, that in the US we had a group of lords and ladies that our forefathers hated so much. They were already rich from owning real estate. But in everything they believe that they deserve a cut in everything, as is their right from birth. The lowly peasants have found clever ways of inventing new processes and technologies and if they have enough money, they can rise to the financial level of the lords and the ladies. Of course, the lords and the ladies cannot have that, because, these nouveau rich could be a threat to their power. So they invent a concept of intellectual real estate, and supply it with laws so that if anyone tread upon this real estate, then they can be fined, and jailed within the fullest extent of the law. To buy such real estate costs $10,000, so an ordinary street rat cannot afford such a luxury for every new idea they have.

    This sounds like a law that would make all of the Edward Longshanks, Brahmins, and all other privileged people of the world proud. Just be careful that they don’t bring back ius primae noctis too.